South Korea's Single-Stock Leveraged ETF Amplifies Rather Than Causes Volatility, Says Korea Investment

According to Korea Investment & Securities on July 14, single-stock leveraged ETFs amplify rather than cause recent market volatility on the Korean stock exchange. The brokerage noted that while rebalancing activity in these products may intensify existing trends, it does not reverse intraday momentum. Researcher Yeom Dong-chan pointed out that morning volatility in Samsung Electronics and SK Hynix has been more pronounced than afternoon trading, when ETF rebalancing typically concentrates, suggesting leverage products are not the primary driver.

However, South Korea's leveraged ETF trading volumes raise concerns. While market-cap shares of underlying assets remain below 1 percent in both South Korea and the United States, Korea's single-stock leveraged ETFs account for 20-30 percent of trading volume compared to just 5 percent in the U.S. Yeom emphasized that uninformed speculative use of these products poses a greater risk than the rebalancing mechanism itself.